Alibaba’s Powerful “Singles’ Day”

As U.S. retailers prep for the Black Friday shopping rush, Alibaba has hit another record-breaking single-day sales record.

Alibaba said its sales for China’s Singles Day on Tuesday (Nov. 11) surpassed $2 billion in the first hour — including more than $1 million in Alipay transactions in the first 18 minutes — and 45.7 percent of first-hour sales were via mobile. The Chinese e-commerce giant expects to clear $8.2 billion for the holiday, which would be a 43 percent rise from $5.75 billion on Singles Day in 2013, when sales surpassed the combined online sales of Black Friday and Cyber Monday in the U.S.

The widely recognized Chinese retail holiday, aimed at encouraging singles to shop for something special for themselves, may seem like China’s own commercial Hallmark holiday but the sales it generates–both online and in-store–are nothing to brush off. Indeed, sales last year hit three times higher than average total U.S. spending on Black Friday and Thanksgiving. This year’s fifth annual Singles’ Day sales in China are expected to exceed $10 billion.

Alibaba is not merely riding the wave of Singles’ Day. It created the pseudo-holiday to popularize Alipay, which is why Alipay is how these items are paid for.

Alibaba indicated sales on its shopping site topped $3.1 billion during the first half of the day’s sales alone; that figure extended to $5.8 billion worth of goods across all of Alibaba’s sites by the end of the day. Just looking at these stats from solely the online portion is still impressive. Chinese online retailers took in a total of $8.2 billion in a 24-hour period. To put that into context, online sales for all of Black Friday in the U.S.–for 2012–was slightly less than $2 billion.

“This year should be even bigger, thanks to the growing acceptance of the Internet among Chinese consumers. The total number of shoppers online has increased about 20 percent, to around 360 million, according to BCG, which expects Alibaba’s TMall and Taobao to account for 70 percent to 80 percent of Singles Day transactions,” Bloomberg reported. “China’s post office is prepared to deliver more than 90 million packages daily “one or two days after Nov. 11,” the People’s Daily reported [Nov. 4] That’s about 40 percent more than last year.”

PayPal said it is working with businesses around the world to boost sales in China, starting with its recently created website Wu Jing Gou (Borderless Shopping) to allow merchants outside of China to advertise discounts and deals to attract Chinese consumers. PayPal said it has collaborated with 30 small and medium sized businesses to bring other offers to the Chinese consumer. It’s also secured China UnionPay to promote PayPal.

“To help promote deals to the Chinese consumer base, PayPal has also teamed up with China UnionPay to promote PayPal’s global merchants on China UnionPay’s overseas shopping platform (haigou.unionpay.com). UnionPay has over two billion cards in circulation,” PayPal said in a company news release. “With UnionPay cards being accepted in the PayPal wallet, Chinese consumers can securely and seamlessly pay with their preferred local payment option.”

What Alibaba has been able to do in five years was tap into its growing E-commerce audience and capitalize on a concept that uses its own marketed holiday to encourage people to shop. Last year’s numbers grew 83 percent from the prior year, Bloomberg said, which shows that Alibaba’s success with the holiday has kept pace with how the company is growing overall.

“The China retail business is proving to be a powerhouse,” Rob Sanderson, managing director with MKM Partners, said in a report published Nov. 4, adding that China’s market offers “impressive growth even at a very large scale.”

Despite the hype around Singles’ Day— and perhaps because of too much of it — Bloomberg also suggested some retailers may be disappointed.

“With only about 25 percent of the Chinese population shopping online, Singles Day creates an opportunity for Alibaba and its rivals to get new customers used to the idea of buying goods over the Internet,” Bloomberg reported. “The loud promotion of Singles Day across the internet helps [persuade] many of China’s netizens to try e-commerce for the first time, BCG’s Walters reports. While the number of shoppers will surely increase, the amount each one spends is likely to drop 15 percent, because promotions are becoming more common throughout the year, making Singles’ Day less special.”

But don’t expect Singles’ Day to go away anytime soon. Alibaba is starting to face competition from other E-commerce sites in China, though plans to turn Singles’ Day into a worldwide event could give Alibaba an edge. Alibaba announced on its Alizila website Wednesday (Nov. 4) that it plans on offering more than 1 million items to consumers outside of China and plans to continue to expand the holiday. The company said Alibaba has already reached agreements with governments and vendors from the U.S., France, and South Korea.

“We hope to build each year’s Singles Day into a platform to allow vendors, service providers and technology partners to play their part,” Wang Yulei, president of Alibaba’s Tmall.com, said in a news conference last week.

It’s not merely an issue of boosting sales. It’s trying to increase booked sales on a specific day. To get those discounts, shoppers make a small down payment as many as four weeks in advance, and then pay the balance on Nov. 11, noted the Wall Street Journal. By the way, the date of Nov. 11—aka 11/11—was chosen by it represents four 1s, reflecting a single status.

This all revolves an E-Commerce measurement called Gross Merchandise Volume. Although the term is agreed to mean the total volume of merchandise, different companies interpret the term differently. For Alibaba, it means confirmed orders, regardless of whether the transaction eventually settles. And it also includes shipping charges. And Alibaba’s definition excludes various higher-level purchases or purchasing situations, such as vehicles or property costing more than 500,000 yuan, any product/service costing more than 100,000 yuan and anything bought by a buyer who spent more than one million yuan in a day.

Over at eBay, the term has no dollar exclusions, but it does exclude classified sites, shopping.com and brands4friends. And eBay does not include the shipping price. It’s purchase definition is simply the value of items “successfully closed” between users, with a similar disclaimer that it doesn’t matter if transaction is ever consummated. (At JD.com, it gets even more nuanced, saying that it’s the value of orders placed, “whether or not goods sold, delivered, returned,” the Journal said.)

On Alibaba’s definition, it’s GMV has been soaring. In 2011, it barely did 5 billion yuan, a figure that jumped to about 19 billion yuan in 2012 and then about 36 billion yuan last year.

It was actually eBay that coin the GMV term and did so in “the mid-1990s to provide a more accurate reflection of its strength online than revenue alone,” the Journal noted.

Not all, however, applaud the term. “I’m really skeptical that e-commerce shows such dramatic growth,” Anne Stevenson-Yang, co-founder of investment-advisory firm J Capital Research, is quoted as saying in the Journal. “You see a lot of pushing of numbers to make them appear bigger than they are.”

“I would be disappointed as an investor to learn that [Aliababa’s] goods that are not actually paid for,” said Ronald Wan, who is the chief China adviser at Asian Capital Holdings. “If the ratio is too high, then some sort of explanation or elaboration needs to be made.”